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Why foreign brands do not enter the Russian cosmetics market on their own?
Most of the western cosmetic brands do not feel like entering the Russian market independently. Which problems do they face in Russia? Why don´t they directly establish their offices there? That´s the way it is done in many other countries, as it spares the company from having to share the profits and to argue with an intermediary. However, it is evident that in Russia foreign companies need a local partner that knows the market well and is able to provide financial support, thus minimizing the risks of entering this not-fully-civilized market.
What are the criteria of choosing a Russian partner?
For foreign companies, despite all the “illnesses” of its growth, the Russian market is attractive not only because of its important volume, but also due to its high rate of growth. Analytics believe that in spring 2011 the retail sector turnover increased by 4% as compared to the same period of 2009 (let´s not forget that markets are still recovering from the crisis). In fact, brands that were forced to abandon the market during the crisis now are attempting to come back, even if they realise that they are not alone anymore and the competitions to enter the market has increased significantly. At the same time, foreign companies are still reluctant to invest their own money into Russia with all its instability and disregard to business rules.
That is why the most popular way to enter Russia is to sign a contract of franchising or distribution. One of the problems foreigners face while working with Russian partners that use “grey” schemes of business is not being always able to control financial flows in the chain “factory-representative-wholesaler”. As a consequence, part of the money is lost in this Bermuda Triangle.
Because of that, foreign companies approach the issue of choosing the partner company very carefully, judging not only by its experience in the specific business sector, but also by its reputation. Working with a careless representative can easily neutralize all efforts of a company and kill its brand image on this market. These considerations force foreign companies to approach consulting firms in order to enter the market. This option allows them to understand all the processes at the same time: finance, accounting, pricing, promotion etc.
There is another one interesting way of entering the Russian market: a contract with the Russian brand representative is signed in a way that under certain conditions he may purchase the opened distribution network. In that case the brand minimizes its risks in the unknown market. During the contract period the foreign company enjoys the knowledge, knowhow and contacts of the partner which allows them to take reasonable decisions on the steps to take. Obviously, it is not the most profitable alternative for the Russian party, whereas for the brand it is the optimal way.
Where to start if you want to enter the Russian cosmetics market? Which moments require your special attention in order not to commit a grave mistake?
A foreign company that plans to establish in the Russian market should, in the first place, take into consideration not only the differences in the legal systems, but also in the mentality and in traditions. For example, marketing actions that proved its efficiency abroad can be ineffective in Russia and provoke misunderstanding of the Russian partner. It is advisable that an authorized brand representative and his team form a so-called “launch base”, which should include a concrete proposal on the sales office opening. Another option could be, together with a consulting agency, to study the most interesting projects – both existing and potential. In the beginning the accent should be made on looking for the sales office with the following adjustment of all the processes that will ensure a smooth start and further brand development.
One of the few consulting agencies dedicated to the introduction of foreign companies to the Russian cosmetics market is CosmoExpo. Its team of competent experts in the local beauty market is specialised in design and implementation of tailor-made advertising and promotional campaigns for cosmetic products in b2b sector. The target audience that they approach consists of beauty salon managers and specialists, as well as of distribution centre representatives of beauty equipment, professional cosmetics and consumables. In total, they reach more than 250 000 of Russian professionals per month.
- целевая аудитория руководителей и специалистов салонного бизнеса, а также сотрудников компаний-дистрибьюторов косметологического оборудования, профессиональной косметики и расходных материалов составляет более четверти миллионов в месяц.